Question

QUESTION 21 Figure 14-3 Suppose a firm operating in a competitive market has the following cost curves: AVC " a"* PRICE " a QQ: QQQ QUANTITY Refer to Figure 14-3. Firms would be encouraged to enter this market for all prices that exceed a. P1 b.P4 c. P2 d. P3- OOOO

Answer 1

21.

A firm will enter only when it can earn a positive economic profit

A firm will make profits when price is above minimum ATC

Here minimum ATC = P4

So correct option is b. P4

20

Firm's short run supply curve is its marginal short run supply curve above minimum AVC

Here minimum AVC = 3

So correct option is a. 3

22

at price P4, market price = minimum ATC, so firm will make zero economic profit

So correct option is c. Zero profits

25

Firm will have zero economic profit when P = ATC

Here P = ATC = 6

So correct option is d. 6